UK: Regulatory Round Up - Autumn 2016

Last Updated: 18 October 2016
Article by Greg Standing

The regulatory experts at Gowling WLG provide their bite size overviews of the major legal and regulatory developments and news for the consumer, asset and automotive finance sectors.

Claims Management Regulator publishes annual reports

The latest annual report from the Claims Management Regulator has been published and reveals that financial penalties imposed on claims management companies (CMC) exceeded £1.7m in the period 2015/16. Much of the work done involved preparing CMC regulations for the transition to Financial Conduct Authority (FCA) control, as a result of which all CMCs will need to re-apply for authorisation.

FCA Quarterly Consultation Paper released

The FCA has released its latest Quarterly Consultation Paper, which sets out various recommendations to amend rules in a number of areas relating to Client Assets Sourcebook (CASS) audit requirements. These are in relation to certain debt management firms, mortgages and home finance, and changes to SUP requirements concerning fee charging credit brokers.

FCA credit card market study - final report

The FCA has produced its final report as part of the recent credit card market study. It concludes that competition is working fairly well for most consumers, who are relatively engaged with the market and willing to switch.

It did also, however, find that there was less competition for high-risk consumers, with four firms accounting for virtually all balances. This was due to the reluctance of other firms to enter the market due to the perceived reputational and regulatory risks associated with high risk lending.

The report also suggested a number of remedies, to be implemented by a mixture of self-regulation and new rules.

Amendment proposed to Anti-Money Laundering Directive

An amendment to the Anti-Money Laundering Directive (AMLD) has been put forward by the European Commission. This would seek to counter terrorist funding and prevent tax avoidance by stricter oversight of beneficial ownership.

FCA publishes findings into the failings in the oversight of ARs

The FCA has published the results of a review into the principal and their appointed representatives in the general insurance sector. It highlighted examples of potential mis-selling and customer detriments as a result of appointed representatives' activities.

The review also set out action that had been taken in respect of those Principals and ARs highlighted in the review.

Debt charity report on relationship between unfair treatment and problem indebtedness

The debt charity Stepchange has produced a report looking at how unfair treatment of consumers by their creditors, debt collectors and bailiffs exacerbates problem indebtedness and what can be done to help alleviate the situation.

The report set out a number of recommendations, including:

  • that credit card limits should only be increased where the consumer requests this;
  • new practice standards to be adopted by local and central government agencies to support households to financial recovery; and
  • a period of grace from six months to a year from enforcement action for people seeking advice for debt problems

Information Commissioner's Office release overview of the General Data Protection Regulation

The Information Commissioner's Office (ICO) has released an overview of the General Data Protection Regulation (GDPR), ahead of the implementation of the GPRO in May 2018.

This sets out in a user-friendly guide the various provisions of the GDPR and also to whom it applies, as well as to which data it applies.

Draft code for compulsory purchase orders (CPO) and negative equity

A draft code has been prepared to deal with situations where a mortgage customer is subject to a compulsory purchase order and finds themselves in negative equity. At this stage the code is merely voluntary and only covers first charge mortgages, but there are proposals to expand it to also include second charge mortgages.

Bank of England stability report

The Bank of England has produced its annual Financial Stability Report. It notes the increased risks to financial stability resulting from the EU referendum. Particularly in the form of jeopardising the inflow of foreign capital to the UK real estate market and the vulnerability of highly indebted UK households to potentially higher unemployment and borrowing costs.

However the report also goes on to highlight the resilience of the UK financial system, which has built in substantial capital and liquidity buffers allowing banks to absorb economic and market shocks.

EU adopts Benchmarking Regulation

The EU has adopted the new Benchmarking Regulation, which seeks to create a common framework and consistent approach for financial benchmarks used in mortgage contracts, consumer credit contracts, financial instruments traded on trading venues or used to measure the performance of investment funds.

FCA publishes paper on predicting financial distress

The FCA has released Occasional Paper 20: "Can we predict which consumer credit users will suffer financial distress?". The paper acknowledges that lenders must base their decision on known or predictable elements. It sets out the strong correlation between high Debt-to-Income ratios and likelihood of financial distress, and claims that this ratio is a better indicator of financial distress than overall personal indebtedness and/or the total number of credit products.

FCA introduces new financial crime reporting rules

Under a new proposal, every firm with full permission for consumer credit and a revenue of over £5 million will have to prepare an annual Financial Crime Return, as set out in a new policy statement introduced by the FCA. The proposal is that the return will be required from the end of 2016 and will have to be submitted within 60 days of the reporting year.

New Finance and Leasing Association (FLA) standard for financial crime prevention

The FLA has also released an industry standard for financial crime prevention. The standard is addressed primarily at the motor finance market, but will also be of interest for those in the asset and consumer finance industries. It will be updated once the changes to the UK Money Laundering Regulations are implemented, which will be in early 2017.

Individual Voluntary Arrangement (IVA) Protocol update

An updated version of the IVA protocol has been released. The update contains no major changes, but there is an issue currently under discussion relating to the treatment of equity in customers' property.

European Commission releases summary of responses to EU Retail Financial Services Green Paper

The EC has released a summary of the contribution it received to the Retail Financial Services Green paper. The purpose of the Green Paper was to consult all interested parties on how the European market for retail financial services - namely insurance, loans, payments, current/ savings accounts and other retail investments - could be further opened up. This would bring better results for consumers and firms, whilst maintaining an adequate level of consumer and investor protection.

The EC is expected to publish an action plan in November 2016.

Bank of England interest rate decision

The Bank of England has lowered the Bank Rate from 0.5% to 0.25%, coinciding with its 2016 Inflation Report. The FCA has published a response to the interest rate drop.

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